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Many small companies and entrepreneurs are thriving while their big business counterparts in corporate America have had to bite the bullet.

The figures are astounding: Approximately 18 million U.S. small businesses employ more than 50% of the private work force and generate almost 40% of the country's gross national product.

How are these businesses similar to the larger commercial accounts telcos serve, and how are they different? What are the challenges to increase revenues in this segment? Who are the key decision-makers, and how can telcos attract their attention?

A growing percentage of small businesses are service-oriented. Even the smallest firms are finding their work increasingly information-intensive, and their competition grows more formidable every day.

Many small companies compete against larger service firms that rely heavily on the telephone to maintain and enhance relationships with customers, capture new accounts and help increase employee productivity.

As small firms grow more sophisticated, many are discovering that they have outgrown their current telecommunications services and capabilities.

New technology that can help these businesses reduce expenses, increase profitability or improve their competitive position will attract great interest. But is new technology necessary? Many central office services and capabilities already deployed in local exchange carrier networks for large business applications can give small-business customers identical payoffs--a competitive advantage and operating efficiencies.

For this reason, demand for Centrex-based telecommunications services tailored for small businesses will grow dramatically in the next few years.

Various forecasts have pegged the compound annual growth rate for such services between 10% and 15%, with estimates of even faster growth in some regions. Against a backdrop of just 2% or 3% growth in CO services overall, the importance of this segment to LECs is obvious.

There is one significant barrier, though. LECs must repackage the services, restructure the tariffs and market these capabilities specifically for small businesses.

Effective Channels

One of the greatest challenges in selling services to the small-business market is finding the most effective and efficient channels for customer contact.

Selling CO-based services to small businesses demands a different marketing approach. In the past, telcos reserved face-to-face sales meetings for their largest accounts, relying on direct marketing to reach residential customers. Neither approach, however, is particularly effective in reaching decision-makers in the small-business market.

The person who makes the key purchasing decisions--most often, the owner-manager--takes a personal interest in how a small company's money is spent. Small-business owners are cost-conscious because they have a narrow margin of error when allocating their resources. Each dollar of expense is a dollar of profit deferred.

Research shows that only two in every five small-business owners are even partially aware of the full range of CO-based services available from telcos--and that is a major stumbling block. Business owners who have never heard of CO-based services can hardly be expected to view them as necessary to gain a competitive edge in their markets.

Many of these small-business owners and managers--like their predecessors in the corporate world 15 years ago--view new services as unnecessary expenses. Telcos must be able to clearly demonstrate tangible business benefits to counteract this mindset. They also must effectively use market research to understand market dynamics, competitive opportunities and the communications needs of potential customers.

Small-business owners want viable, cost-effective solutions to their communications problems. They want lower overhead, enhanced revenues and in reased profits.

The public switched network can help these businesses with direct inward and outward dialing, call forward or transfer that is unconstrained by the boundaries of a controller, the ability to add or substract lines and features on an as-needed basis, calling number and name identification, special handling of selected calls, and the integration of voice and data.

These capabilities can be powerful equalizers for small companies that compete with larger firms. With this in mind, AT&T Network Systems initiated a program in 1990 to help LECs increase demand for CO-based services.

One of the first efforts was the Small Business Selling Guide, developed by AT&T with the participation of marketing specialists from a number of LECs. The guide contains specific examples of successful sales to small businesses nationwide and matches the service examples with the CO features that made them possible.

The guide compares the financial advantages of the LEC service arrangement to a premises-based system purchase. Another section profiles industry applications for legal, health care, real estate, restaurant and business services. In addition, it contains templates to help prepare a service proposal.

BellSouth, Pacific Bell, GTE and Rochester Telephone are among the companies that are using the guide, and a few have customized their versions. Even before AT&T's final product was published, BellSouth began using parts of the guide in a campaign to market its ESSX services. Over time, feedback from LEC users will be the basis for refining and updating the guide.

Training packages are another important facet of AT&T's small-business initiative. Bell Atlantic, Rochester Tel and Pacific Bell are among those using AT&T training.

U S West, Ameritech and Nynex have customized training packages developed by AT&T on local area signaling services (LASS). AT&T also offers various training modules and support materials for users, installers and maintenance specialists.

To help LECs provide potential small-business clients with hands-on demonstrations of leading CO-based services, AT&T has developed support programs that simulate LASS functions and detail vertical integrated services digital network applications.

Right Time, Right Place

One of the primary reasons small-business owners are extremely difficult to reach is because their time is so limited. Messages and events need to be structured creatively to find the right prospect in the right place at the right time.

One approach is to focus on reaching business leaders and influential trendsetters through community-based organizations that bring such individuals together. A prime example is the local chamber of commerce.

In September, an AT&T Network Systems marketing manager and a GTE marketing specialist worked together to conduct a special event to demonstrate the benefits of ISDN for chamber of commerce members in Brandon, Fla., just outside Tampa.

GTE had just installed an AT&T 5ESS switch in Brandon, enabling a host of new services and capabilities for business customers in the area.

In addition to presentations, the chamber members were offered hands-on demonstrations of small-business applications, including display capabilities, an ISDN personal computer local area network using packet-switched data communications and an ISDN real estate application (see page 30).

The demonstrations generated interest from several prospects, including a home security service, a temporary services agency and a number of local real estate agencies.

Southern Bell, BellSouth Services, AT&T Network Systems and AT&T Bell Laboratories teamed up before Christmas last year to try a different approach to demonstrate the potential of CO-based services, specifically personal video and ISDN.

ISDN delivered Santa Claus to children hospitalized at Scottish Rite Children's Medical Center in Atlanta--via video hot line.

The event received a lot of attention within the local health care industry, which is increasingly dominated by small businesses that rely heavily on telecommunications. As such, health care is an especially attractive segment of the market that is perfect for CO-based services.

Small health care providers want to improve customer response time, decrease scheduling delays, locate staff faster and reduce expenses. They also may be more inclined to consider reliability, quality and service when evaluating costs and benefits of new telecom services.

Because the local health care community, including individual physicians, group practitioners, clinics, pharmacies, laboratories and nursing homes, are highly interdependent, the local carrier is uniquely positioned to provide voice, data and video exchanges.

In Atlanta, the event last Christmas opened a continuing dialogue in the community on potential CO-based video services to link intensive-care patient monitoring, remote medical care and diagnostic consultation.